May 24, 2021
By Jeff Thompson, Autauga Quality Cotton,
New crop prices advanced two cents on the week closing Friday at 83.22. A nice rebound after the prior week’s sizeable selloff. Uncertainties as to the true benefit of rainfall in the Southwest had traders viewing the market as oversold. It appears to have settled into the low 80s, a comfortable trading range while it tries to discern the potential size of the 2021 crop.
Over the next few weeks weather conditions will be watched closely and a June S/D report will be analyzed. However, we will not have a tradable production number until June 30 when the actual plantings are released. USDA is currently estimating 12 million planted acres which is obviously too high considering the amount lost to grains. Thus, the burning question becomes how much lower.
There is talk among the industry it could be reduced by two million acres. The accompanying chart illustrates the impact this could have, and yet still the wide range overall production could fall within when accounting for abandonment. Calculations were made using two different planted acre numbers and applying the five-year historical abandonment rate and five-year yield averages while including the highs and lows to show the possible range.
We feel this year’s crop will be closer to 15 million bales but be mindful it has the potential to be as high as 17.5 or as low as 12.3 million bales. With beginning stocks at only around three million bales, a crop of this size should easily be absorbed.
Even though you could not tell by the market’s meager reaction, export sales were much improved over the prior week. Net current crop sales of 116,000 were double that of the week before. Combined with new crop sales, they totaled nearly 138,000 bales, a six percent increase from last week and its four-week average. Somewhat alarming though is new crop sales are the lowest in five years.
Hopefully, this is simply a sign foreign mills are buying hand to mouth rather than buying forward thinking the market will go lower or the basis will improve. On a more positive note, shipments are the highest on record for this time of the marketing year with only the 2005 crop and 2010 crop coming close.
The Commitment of Traders Report reflects activity through May 18. Managed Funds reduced their long position by almost one million bales. Most of this accounted for the previous week’s selloff on Thursday and Friday. Their net long position now stands at an equivalent of 4.6 million bales compared to almost 8.5 million at the market’s February peak. Thus, there remains a great deal of money sitting on the sidelines which could be put to work driving prices higher.
What lies ahead? As mentioned, support lies in the low 80s until we get a better handle on the size of this year’s crop. The growing season is young so many uncertainties are ahead of us. The Southwest will need additional rainfall while a late U.S. crop creates a whole new set of issues which must be dealt with.